5 Ways to Build Credit if You Have Zero Credit History

Wise Loan Editorial Team
By: Wise Loan Editorial Team
credit score sketch on notebook

Building credit may seem like a challenging situation, as it often appears to be a catch-22. You require credit to obtain credit, but without any credit history, it’s difficult to get started. Nevertheless, the situation isn’t as absolute as it seems, and there are several effective ways to begin building credit, even if you’ve never had a loan or credit card before.

In the following sections, we’ll explore five methods to establish credit when you have no credit history. Each option will be explained, including its functioning and associated risks, allowing you to make informed decisions tailored to your personal financial circumstances.

The Importance of Building Credit:

Before delving into these tips, it’s essential to understand the significance of building your credit. Having no credit history can place you at a considerable financial disadvantage. Here are a few challenges you might encounter without any credit:

  1. Inability to secure a home loan in the future.
  2. Difficulty renting the apartment or house of your choice at present.
  3. Requirement to pay substantial deposits to activate utility accounts.
  4. Inability to obtain cell phone services or devices on credit from cellular providers.
  5. Being turned down for jobs that mandate a credit check during background screening.
  6. Facing restrictions when attempting to rent a car.
  7. Difficulty in getting approved for credit cards with attractive benefits.

Five Methods to Build Your Credit:

The most effective way to build credit is to obtain credit and demonstrate responsible management. Even without an existing credit history, there are various strategies to achieve this. Here are some ways to do so, along with other credit-building options you might consider:

  1. Savings Account-Secured Credit-Building Loan:

Certain lenders offer specialized loan products designed explicitly to help you build credit. These loans are typically not intended to meet immediate cash flow needs, as the funds may not be accessible immediately. Here’s how they work:

– Apply for a credit-building savings account-backed loan, where the lender places the loan amount in a locked savings account, temporarily restricting access to the funds.

– Make regular payments, usually on a monthly basis, to repay the loan over a specific period, typically 6-12 months, depending on the agreed-upon terms and loan amount.

– Timely payments are reported to credit bureaus, contributing to a positive payment history and gradually building your credit score.

– Once you’ve fulfilled all payments as agreed, the savings account is unlocked, granting you access to the money.

This type of credit-building loan has the advantage of not necessarily requiring a good credit score or any credit history. However, it’s essential to be aware that you won’t have immediate access to the loaned funds, and a service fee may apply.

  1. Consider a Secured Credit Card

If you’re looking to build your credit, a secured credit card is a viable option. It caters to those without any credit history or individuals who only have installment loans in their credit reports. To boost your credit score effectively, lenders prefer seeing a mix of installment loans and revolving credit accounts, such as credit cards, in your history.

With a secured credit card, you are required to make a deposit, which secures your initial credit limit. For instance, if you deposit $250, your credit limit becomes $250. After approximately six months of responsible card management and making timely payments, you might be eligible for a credit limit increase or even a refund of your initial deposit.

  1. Seek a Cosigner’s Support

If you’re aiming for a car loan, you can approach someone you trust to act as a cosigner on your behalf. A cosigner with good credit can help you secure the loan at a reasonable interest rate. However, ensure that the lender reports your timely payments to both credit accounts, as this will benefit your credit history.

Keep in mind that finding a willing cosigner may not be easy, as their credit may be negatively impacted if you fail to make payments as agreed. Since the lender can also hold them responsible for payments, not everyone will be comfortable with this approach.
 5 Ways to Build Credit if You Have Zero Credit History

  1. Become an Authorized User on a Credit Card

Another method to leverage someone else’s good credit is to become an authorized user on their credit card. You don’t necessarily need to use the card for this to be effective. Some credit card companies report the account status and payment history to both users’ credit profiles. Before proceeding, ensure that the cardholder is responsible for their account and consistently pays their bills on time. Otherwise, you might end up with a negative impact on your credit history due to their missed payments.

  1. Apply for a Loan from Wise Loan

While Wise Loan can assist you in building credit, it doesn’t offer credit-building loans as described in option 1. When you’re approved for a loan from Wise Loan, you have access to the funds immediately. If you apply before 5:30 PM Central Time and choose the instant funding option, you could even receive the cash in your bank account on the same day you’re approved.

Wise Loan doesn’t require a good credit score for approval, but it does report to two major credit bureaus. By repaying your Wise Loan as agreed, you can establish a positive payment history and eliminate your zero credit history. Take the first step towards building your credit for the future by applying now.

Regardless of the method you choose to initiate your credit journey, ensure you make timely payments, keep balances as low as possible, and work within your personal budget realistically. Demonstrating responsibility for your debt is one of the most effective ways to ensure a positive long-term credit standing.

The recommendations contained in this article are designed for informational purposes only.  Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.

More information on Installment Loans and how they work in your state:

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About the Author

Wise Loan Editorial Team

Wise Loan Editorial Team

Introducing the Wise Loan Editorial Team – a collective of experienced finance and credit professionals dedicated to enhancing your financial path. Our team boasts over three decades of expertise in the finance sector, united in our commitment to deliver reliable and practical financial insights. True to the Wise Loan ethos, our goal is to positively impact the financial well-being of our customers.

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